News Yesterday, SapuraKencana Petroleum (SKPETRO) announced that it has secured one drilling contract, three offshore construction and subsea services contracts and one fabrication, hook-up and commissioning contract worth a cumulative USD312m (RM1.01b).
Comments We are positive on these wins which highlight SKPETRO’s ability to win contracts across all divisions.
Most importantly, we are positive on the fabrication contract award which is long-awaited by the sector. Recall, SKPETRO did guide that it could secure fabrication contract awards by mid-FY14.
There is no breakdown of the contracts for each of the awards; however, we believe that they have neutral financial impact to our forecasts given that RM1b is immaterial given SKPETRO’s existing order book of c. RM27b. We have already imputed various contract replenishments for each of the divisions.
Outlook At our last count SKPETRO’s order book stood at RM27b, hence these new wins bump up the order book to RM28b.
Tender book was guided to be within RM25b.
We believe SKPETRO is scheduled to: (i) begin the new campaign for Pan-Malaysia Transport and Installation (T&I) contract, (ii) receive two DLBs and KM-2, (iii) kick-start two Brazilian pipelay-support vessels (PLSV), and (iv) account for Newfield’s earnings in CY14. All these will provide near-term catalysts for the stock.
For Newfield project; targets are to transform the discoveries to 2P reserves by end-CY14. For now, the SK310’s resources are estimated to be at 1.5-3.0 tcf.
Forecast Maintain forecasts for now given we have already assumed contract replenishment across all divisions.
Rating Maintain OUTPERFORM
Valuation Our TP of RM5.57 is unchanged based on a CY15 EPS of 26.5 sen and target PER of 22x.
The c.20% premium ascribed to SKPETRO (versus the 18x PER ascribed to MHB) is justified, in our view, as it is the only integrated Malaysian upstream player (from E&P to installation).
Moreover, the stock is currently still attractively priced at CY14-15 PER of 18.7-16.0x (vis-à-vis other heavyweights such as UMW O&G that trades at CY14-15 PER of 30.4-18.9x.
Risks to Our Call (i) Lower-than-expected margins for business segments
(ii) Lower-than-expected contract replenishment.
Source: Kenanga
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